I just went thru my weekend excercise of comparing premiums and wanted to show a concrete example of what I tend to look for. Looking at CREE with a strike price of $30, the July calls are selling for $0.80, the Aug. calls for $2.00, and the Sept calls for $2.90. On an approx. per day basis, this works out to about 4 cents a day for both the July and Aug., and about 3.5 cents for Sept. I would not be selling any of these right now, since rightly or wrongly I expect Cree to continue up based on recent action. If it does go up 2-4 points sometime in the next week, I would be looking for the Aug. calls to go up more that the July calls on a per day basis. I would also continue watching the Sept.'s since they are also close on a per day basis and may also overtake the near month if the move up is stronger than 2-4 points.
I would then set a mental target (and maybe a GTC order) for the Aug. at around $3.00 or the Sept. at $4.00+, and go to work (the hourly pay job where I don't have access to quotes), watching to see how they all acted. If this did not happen, I would wait for something else.
On a slightly different topic, I was looking at the put prices for NTAP, since my cost basis is too high to reasonably expect to sell calls with which I would be pleased. (to be grammatically correct)
I find that .OHDMB (Jan 03 10's) have a bid-ask of $3.10-$3.50, with 10 contracts having traded Friday with a closing price of $3.10. Is it correct to read this that I could sell a cash covered put at 10 for $310, which would obligate me to keep $1,000. in cash until Jan 03 on the chance that the stock was put to me? If so, is the rational of the buyer of those 10 contracts that traded Friday that NTAP will be trading at less than $6.90 18 months out, and that it is worth paying $310 now on the strength of that conviction?
TIA
ARS |
